From EBITDA to Cash Flow 

A Step-by-Step Breakdown of How EBITDA Is Adjusted to Arrive at Real Cash Flow

1. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) 
Starting point: Reflects the operational profitability without considering non-cash and financing elements.

2. Depreciation and Amortization (D&A) 
Although it's deducted to get net profit, it's a non-cash expense, so it's added back in the operating cash flow. 
Formula: Net Profit + D&A → Operating Cash Flow Adjustment

3. Financial Revenues and Expenses 
Interest income/expenses are included in net profit but not part of operational activities. They need to be excluded or reclassified. 
Formula: Adjust for financial items → Operational Purity

4. Income Taxes 
Taxes are deducted from net profit. Cash flow needs to reflect actual tax payments, not just accounting provisions. 
Formula: Net Profit − Tax Payable + Actual Tax Paid → Adjusted Net Cash

5. Non-Cash Expenses 
These include provisions, impairments, revaluations — they affect accounting profits but not actual cash. 
Formula: Accounting Losses (non-cash) → Add Back to Cash Flow

6. AR Increase (Accounts Receivable) 
If receivables go up, it means we sold something but didn't collect the cash. So, cash flow goes down. 
Formula: ↑ Receivables → ↓ Cash 
↓ Receivables → ↑ Cash

7. Inventory Change 
Inventory purchases consume cash. If inventory increases, it reduces cash flow. 
Formula: ↑ Inventory → ↓ Cash Flow 
↓ Inventory → ↑ Cash Flow

8. AP Increase (Accounts Payable) 
If we delay payments to suppliers, cash stays with us. So payables increase cash flow. 
Formula: ↑ Payables → ↑ Cash 
↓ Payables → ↓ Cash

9. Asset Acquisition and Disposal 
Buying assets uses cash. Selling assets provides cash. 
Formula: ↑ Fixed Assets → ↓ Cash 
Asset Sale → ↑ Cash

10. Loan Activity (Financing Cash Flow Area) 
- Loan Taken: Increases cash 
- Loan Repaid: Decreases cash 
- Dividends Paid: Outflow from financing activities 
Formula: New Loans → ↑ Cash | Repayments/Dividends → ↓ Cash

11. Final Cash Flow 
All these adjustments bring us from EBITDA to the real net cash flow of the business.

Summary Formula Flow: 
EBITDA 
→ Adjust for D&A 
→ Adjust for financial income/expenses 
→ Adjust for tax payments 
→ Add back non-cash losses 
→ Subtract ↑ in AR & Inventory 
→ Add ↑ in AP 
→ Subtract asset acquisitions 
→ Add proceeds from asset sales 
→ Adjust for financing flows (loans/dividends) 
= Cash Flow